As the worldwide demand for smartphones and wearable devices increases, so does the demand for high quality electronic components. Smart automobiles, infrastructure and smart machinery are the other factors driving the demand for electronic components, claim mobile industry experts. They also predict that in the coming years, IoT will be the game changer and will lead to the addition of billions of new-fangled nodes or units on the Internet. These new units will include data storage devices, sensors, computers and related infrastructure. All of them will be interconnected through the IoT and will be integrated into networks and software systems. So there will need to be even more electronic components available, especially for mobile devices.
By Nijhum Rudra
Back in 2009, MeitY had predicted that the demand for electronics hardware in India would increase to US$ 400 billion by 2020. But though there is a huge scope for Indian manufacturers in this growing market, only a boost to component manufacturing can truly bring about economic benefits for the Indian electronics industry. The electronic components produced in India include picture tubes, diodes, transistors, power devices, resistors, capacitors, switches, relays, connectors, magnetic heads, etc. According to industry association ELCINA, the manufacture of electronic components in India was estimated to be worth ₹ 583.51 billion in 2017-18, up 12 per cent from ₹ 520.99 billion in 2016-17.
In 2017-18, the Indian government imposed custom duty on certain finished electronic goods. The custom duty on PCBAs has also increased in the last three-four years, with the intention of strengthening the domestic EMS and component manufacturing segment. The manufacture of PCBAs for mobile phones is a positive step towards bolstering the local ecosystem for component manufacturing. This segment posted a CAGR of 14 per cent in the year 2018-19 with a turnover of ₹ 677.06 billion.
Among all the major electronics market segments in the country, consumer electronics and mobile phones have grown the fastest and so, the demand for mobile components has increased exponentially over the past few years. In FY 2017-18, mobile phones and components manufacturing activity continued to grow. Over 120 new manufacturing units of mobile phones and components have been set up in the last three years across the country. Of these, 59 units make mobile handsets and the rest are engaged in manufacturing various components for them, such as chargers and adapters, battery packs, wired headsets, mechanical parts, USB cables, etc.
To accelerate growth further, the government stepped in to boost the mobile sector with several policies and initiatives that led to huge investments in mobile component manufacturing clusters. Along with the NPE (National Policy on Electronics), the Phased Manufacturing Programme (PMP) has played a decisive role in driving the mobile components industry. The PMP has revolutionised the entire mobile component manufacturing domain with major big brands either starting their own facilities in India or partnering with contract manufacturers to cater to local demand, claims IDC.
However, some challenges remain. Upasana Joshi, associate research manager, client devices, IDC India, says, “We are now lowering our dependence on imports by locally sourcing parts made in India. Currently, with SMT in place, we have certainly upscaled our production processes. However, key components are still being sourced from China, and a delay in the delivery of even a small component can lead to bottlenecks.”
And in spite of government subsidies that, together with the ecosystem partners, promote R&D, there are many things still holding this segment back.
“Scarcity of essential resources like water and electricity, which are critical to manufacturing units, scales down the potential to meet market demand. Even on the logistics side, the government needs to invest in developing ports, transportation, insurance, banking facilities, etc. Though skilled manpower has certainly scaled up and we continue to enjoy a low cost of production, we are still behind China in terms of matching their scale and standards,” adds Joshi.
| What the expert says |
 The government needs to offer lucrative incentives in the form of subsidies for scaling up manufacturing locally and for export purposes. Driving the growth of SEZs and backing multi-year tie-ups to ensure local partnerships among component manufacturers and brands, are other important steps to be taken. Merely hiking up the duty on imported components will not benefit anyone – neither the brands, nor the ecosystem or the consumers. If infrastructure is not in place, brands will be forced to raise prices and the trickle down effect means a higher cost to consumers. With the US-China trade war, many companies have opted to move to India for manufacturing. So, this industry certainly has huge potential to grow, particularly with the backing of lucrative government subsidies and tie-ups.—Upasana Joshi, associate research manager, client devices, IDC India |
Low value addition is a concern
The demand for mobile phones in India, especially smartphones, has increased tremendously due to a number of factors—wide Internet access, tech-savvy customers, and the growth of disposable incomes. This has led to an increase in demand for Indian mobile component manufacturing and assembly units.
A new report from Research and Markets states that the mobile phone assembly and components manufacturing market in India was worth US$ 20.7 billion in 2017, US$ 25.3 billion in 2018 and is estimated to reach a value of US$ 62.8 billion by 2023, growing at a CAGR of 19.9 per cent during 2018-2023. Some of the leading players operating in the market include Samsung, Xiaomi, Lenovo, Micromax, Oppo, Vivo, Lava, Karbonn and Intex.
As the ‘Make-in-India’ programme for mobile phone manufacturing is still mostly about assembly, India had to import US$ 13 billion worth of components in 2018. Tarun Pathak, associate director at Counterpoint Research, says in his blog, “Not many high-value components are being sourced from India. As a result, local value addition in India was at 17 per cent during 2018. This helped the country save US$ 2.5 billion in forex, but increased assembly operations in India led to the value of imported mobile phone components going up to US$ 13 billion.”
A report by Counterpoint Research opines that MeitY’s Phased Manufacturing Programme (PMP) is running behind schedule as the implementation of custom duties under Phase III, which targets display assemblies, touch panels/cover glass assemblies and vibrators/motor ringers, has been delayed.
Government and corporate initiatives
Mobile makers in India are of the opinion that the government’s move to hike duty on PCBAs and chargers will help expand the domestic manufacture of components. Recently, the government increased the import duty on PCBAs to 20 per cent from the current 10 per cent and for chargers, from 15 per cent to 20 per cent. This is expected to increase the domestic production of PCBAs by 100 million units, and chargers by 50 million units, claims MeitY. As of now, around 160 million units of PCBAs are domestically manufactured. Most importantly, this move will bring the manufacturing target of 1 billion mobile handsets within reach, and help the country to achieve its 2025 target turnover of US$ 400 billion from local manufacturing.
To increase the mobile component manufacturing base, Chinese global brand Xiaomi and Holitech Technology have together set up a mobile component manufacturing plant in Greater Noida. This is spread over four factories, spans 25,000 square metres, and has an annual production capacity of 300 million components. According to reports, Holitech is investing US$ 200 million (approx. ₹ 13.87 billion) in the coming three years in India. The plant will manufacture compact camera modules (CCM), capacitive touchscreen modules (CTP), thin film transistors (TFT), flexible printed circuits (FPC), and fingerprint modules.
To boost the mobile component manufacturing industry, the Internet and Mobile Association of India (IAMAI) has proposed in a report that under MSIPS, the government should offer phone makers 30 per cent of the capital expenditure to help offset the loss of revenue faced by companies when they move a component manufacturing facility to India. The IAMAI report adds that the cost of starting a component manufacturing facility includes the loss of revenue for around five to nine months in the best case scenario and at worst, for a period of almost two years. It also states that if a global player decides to manufacture in India, it will lose revenue for at least two-three quarters against the better alternative of setting up or continuing its factory in China or Vietnam.
There is also a need for a paradigm shift to increase the Indian ownership of the value chain by strategically targeting the highest value-adding parts of component manufacturing, inviting high technology driven investment to India. The industry needs to focus on components that add high value to the end product, and which can be used across the electronics manufacturing sector. These are the low hanging fruit in the current mobile manufacturing ecosystem, adds IAMAI.
| Component duty structures |
| Year | Component | Duty Structure under Phased Manufacturing Programme | Duty Implementation Status | % Age Contribution to BoM (Bills of Material) | Local Sourcing |
| 2016-17 |
|
15% | Implemented | 6% | High |
| 2017-18 |
|
15% | Implemented | 7% | Low for Mechanics Rest is High |
| 2018-19 |
|
10% | Implemented | 62% | Low |
| 2019-20 |
|
Likely to be Deferred | Likely to be Deferred | 25% | Not Started |
Source: Counterpoint Technology Market Research
The coronavirus impact
Amidst favourable market conditions, the Indian electronics and components industry is said to be at risk over the past few weeks because of the coronavirus pandemic in China. Many local firms dependent on Chinese imports are running out of major supplies due to the forced closure of several factories in Wuhan. Ajay Sahai, director general and chief executive of the Federation of Indian Export Organisations told The Print that if the Chinese factories restart production by the middle of March, then Indian companies might recoup their losses.
Handset makers are even more affected because 80 per cent of components are being imported from China, says Rajan Matthews, director-general, Cellular Operators Association of India (COAI).
